Pak economy: curing cancer with anti-fever medicines?

Omer Zaheer Meer - Due to some personal engagements, a write-up dated 22nd March 2015 by Ejaz Wasti, a gentleman working for finance ministry, questioning my 16th March 2015 article published in The Nation, titled “IMF-Driven policies: Destroying economy and inciting revolts?” missed my attention. Recently it was brought to my notice.

The initial thought was to let it be but the lack of substance all but forced this scribe to pen this piece in the hopes that it may be taken not as a rebuttal but as constructive feedback aimed at helping the decision makers improve for the betterment of our beloved Pakistan. For, while we appreciate the positive endeavours of our policy makers as evident from the past articles of this writer, pointing out the shortcomings is also our moral obligation.

Unfortunately Wasti ignored important questions raised in the original article of 16th March and instead focused on inking a column seemed to have been compiled in a rush. What’s more tragic is that just days afterwards the denial penned by the gentleman, World Bank as well as Asian Development Bank issued damning reports vindicating this writers’ perspective while blowing off the lid of the misconstrued arguments of the finance ministry employee/consultant. It’d therefore be surprising to see how any neutral economist could possibly justify the worst growth rate in the region even below the likes of Afghanistan and Bhutan as outlined by the above mentioned reports?

It’s tragic that the statistics often shared by certain quarters of the ministry reminds us of Sartaj Aziz who pursued similar gimmicks, building an economy on a bubble rather than on solid foundations of increasing GNP and GDP by focusing on national output. Remember, Sartaj’s bubble got busted not long after the end of his Government. This time around we don’t want a similar “feat” from a Government famous for its economic achievements.

Coming back to the 16th March write-up, some of the major questions were left unanswered including the fact that why the whole Rs500 billion payment to IPPs was made in one go without ensuring the availability of the loudly trumpeted “40pc” unused capacity? Why the payment of this huge sum was not done in installments with ensuring availability of additional capacity in the national power system at the release of each tranche, particularly considering Pakistan went to IMF for a $6.7 billion installment based bailout package, 75pc of which was paid to IPPs?

Furthermore, I humbly dare to question why has the circular debt again reached Rs 600 billion, surpassing the previous level? Would it not have been better to focus on structural reforms and cutting the line losses as proposed earlier by this writer instead of treating it as a matter of wounded ego?

Furthermore as to the claims of adding 1700MW “additional” capacity in the system by “IPPs”, can Wasti provide any evidence to this since it has not even been claimed by the IPPs or even the finance ministry represented by him. Having said that, the claims of forensic audits and verification by Ministry of the huge payments are commendable and should be released to the public, but the question of bypassing AG office was still left unanswered.

Next the scribe from finance ministry referred to income tax notices issued with the aim to broaden the tax base. Perhaps he should spare some time to check the ground realities. Never mind, let us try to assist our decision makers here.

Recently notices claiming no existing tax registration based on “economic activities”, usually citing vehicle purchases were sent out to masses. Sounds good? Hang on, many of those receiving these notices were not only tax payers already registered but paying millions in income taxes annually? This exemplifies a total lack of coordination within the systems and functions of FBR. Missing out on the records already held by FBR simply reinforces the misconceptions that Government policies are to bother the already registered tax payers and not to act as a facilitator or initiator of genuine drives to catch tax evaders. Instead of helping the underlying objective, the manner in which this drive is performed is actually pushing genuine tax payers on the brink of undesirable actions.

What’s tragic is that while on one hand such steps are undertaken citing the need to broaden the tax base but on the other hand proposals with huge potential to achieve a larger tax base such as brining agricultural income within the tax net as well as allowing use of CNIC as National Tax Numbers (NTN) and Sales Tax Registration Numbers (STRN) have been falling on deaf ears for almost a decade now. Of late, there has been news that CNIC may finally be allowed as NTN. If done, this will be a step in the right direction.

Similarly the question about the petrol crisis was also conveniently ignored. While repeating the point outlined by this writer that the incumbent Government did pass on some of the benefit of reduction in oil prices in international market owning to political pressures, he again preferred to ignore the question of how much? As per last available data, Government of Pakistan amassed a benefit of $2 billion by the price reduction and as per most mainstream studies (as the government has not shared the exact data), not more than a quarter of this was passed on to the people of Pakistan. Perhaps the finance ministry can share exact data about this to enlighten us all in this regard.

To sum it up, let’s examine an extract from my original 16th March article: “While we can give some space to government’s economic team citing the tough challenges they inherited and are facing, what is unfortunate though is that even the steps possible within the ambit of Finance Ministry are not taken ……. the painful but obvious fact remains that the necessary reforms required to revamp the tax system and structures are not been followed either. Instead of extending the tax base by bringing in agriculture and other exempt areas in the tax net the existing base is being taxed more along-with higher indirect taxes imposed on the common citizen, both of which are disastrous in the long run.

Had we actually taken the tough but necessary decision to broaden our tax base and executed proper financial management especially in the power circular debt payment we would not need to go to the IMF. The lack of these reforms has led to exorbitant borrowings, with the internal borrowings alone reaching the mark of a trillion.”

With this, let’s conclude by asking whether those officials representing the present Government will review the IMF driven economic policies and carryout the necessary reforms while providing relief to the ordinary citizens or will they continue to focus more on short-term cosmetic measures without any bearing to the economic condition of a common man? Perhaps even more important is the question whether these officials have the stomach to digest constructive criticism and engage positively to ensure beneficial proposals for the national economy?